In the Matter of Insolvency Act 2003 ( Russell Crumpler at al)

THE EASTERN CARIBBEAN SUPREME COURT IN THE HIGH COURT OF JUSTICE BRITISH VIRGIN ISLANDS (COMMERCIAL DMSION) Claim No. BVI He (COM) 201210056 AND IN THE MATTER OF THE INSOI.. VENCY ACT 2003 IN THE MATTER OF TITAN GROtP INVESTMENT UIlITEO (IN LIQUIDATION) (1) RUSSELLCRUIIPl..ER (2) EDWARD MIDDLETON (3) PATRICK COWIE( (In lheircapacity as Joint axI Several Liquidators ofTdan Group Irwesbllent L.inited (In liquidation)) AppeaIances: Mr Ben Mays for the Applicant LiquidatoIs Mr BriaI ChId for the Objec;to(, TItan Oil Sbage Inveslment Linited JUDGMENT (2014: 20 FebruaIy, 4 MaJdl) (Application by pot Court appoinIed l.ijuidakn for interim lMIlII8I’aIion -two out of hi’ Liqllidam Hong Kong aesident ilSOlvency pracIiIioners – whetter Hong Kong Iesident Liquidalols In be remunerated in accotdanoe with Hong Kong insolvency pracIice and procedures – meaning and effecl of section 432(5)(a){VI) of !he Insolvency Act, 2003 considered – whether liquidators’ lime sheets properly In be allocated discIeIe limes for discI8te tasks – wheIher legal services pro’t’ided ID Hong Kong resident Liquidators by Hong Kong lawyers In be !axed in accordance willi procedures of High Court in Hong Kong) [lJ BannIster J [Ag): This is an appIcatQl by Mr Russell Crumpler, of KPMG (BVI) Lirrited (‘Mr Crumpler’) and Mr Patrick Cowley CMr Cowley’) and Mr Edwad Middleton (‘Mr Mkkl1eton1. each of KPMG (Hong Kong) (qeIher ‘the Liquidators’). for an irterim payment of their /8IJIllleration (wtich incJudes their propeiIy incurred expei s e s and dislll.lsemenls~ as IquidakJIs of a BVI UICOIJXliaied company caBed 1iIan Group Inveslment Limited (‘the Company’). The appUcaIion includes remilleration attributable to Mr Stuart Mackellar, who was appoinIed as IiII additional liquidator, with restricted, aIhough illlPDItant functions not iJMJIving !he getIiIg in IiIId dlsIribuIion of !he Company’s assels (‘Mr Mackellal’). [2J The application has been opposed and as a result, some pailis of general importance haw Den. This ;X¥lleI’It deals only willi !hose points.

[3]The Company was pIaeed into liquidation by IiII order of Ihis Court made on 16 July 2012. The Company is !he parent of a group whose operations. carried out through PRe registered companies. consist of !he storage and man/pulalion of oil and petroleum products at shore based depots iI IllIinbnf China (‘the Group1- The operating companies are heti by fie ComI’lillY through a slructure of (mainly) Hong Kong incorporated oomparIes, aIIlough the Company’s immediate subsid”1lIIY is incorporated in Bennuda. It was for these fe as II,IS that Mr Cowley and Mr Middleton were appointed together with Mr ClurqJIer 10 be !he CclnpMy’s LiqlIidaIors.. (4) The Com!IIiIIY was lIlIiI shortly before 10 !he appoIntmenls owned by Warburg Plncus2 (‘WP’) as 10 50.1% IiIId by TIan Oil ~vesknent Umited CTOSIL’) as to the remaining 49.9’1(,. At. that time, WP am TOSIL went locked in a batHe for control of the Group. At the same time, !he Group’s linandal position was piecaious \0 a degree. It was under pressure from lendilg iISIUons, incUlilg Bank of China. which was plainly at a point wheie enbt:ament was likely at any lime. EsIinaled outcomes upon a liquidation of !he Group ranged from nil to, at best, 13 cenls in the dollar. Further, linandal cOIIsliaids meant that the Group’s I”aciIiIies went. to a IaIge extent, in a hazardous state, both from a safety and from an environmental pcint of view. The sIatf, unsurprisingly, was disgrunIIed and fearful for lis ilture. The LiquidaIors had 10 confront these problems against !he notorious difIicuIty of obtaining control of mainland Chinese companies.in cases where their current management is unwlling to co-operate. (5) By the application of skII, IBnacily am, perhaps mcst importantly, lad and diplomacy, the liquidators hili managed, by the end of SepIernber 2012, to adliewl a sale of the Company’s assets at a price which, according to their present eslimaEs, will pay aI aeditors in ful and which is estimated to produce a small (relalively speaking) surplus to members. EcooonricaIIy speailillQ and in raaiJy. !he purchaser was wp. and the ~ s/gIilicall pe.iquidation indebIedness to WP was used 10 satisfy a lalg9 portion of !he J)IIdlase price. Further. WP has eIfecIiveIy dropped out as a shareholder I Insolvency Act. 2003 section 2(1) , tIvoush Its nominee, Saturn Storage limited and TOSIL Is, for aI JIfBCIicaI ptIJlllses, left as !he Company’S sole member. There is no d 12 been applied to the hours claimed by Mr Cowley and Mr MidcWon, Mr Wong says that Ihe fees whidllhey would /me been aIowed, 00 the basis that an the . houIs were properly claimable, would have been less by some USD660,OOO than the claim as made, a dilfaence. he says, of some 31%. Mr Wong acc:epIs. as the reinnce to Rule 146 makes clear, \hal it is open 10 the Court 10 award ramuneralion in excess of a figtn derived by a mechanical appI’lCaIion of the Panel A rates, but he says that any such upIft would have to be justified. He imples Ihat. given thai the Panel A !ales were revised upwads as /eC8I1IIy as August 2012, such an uplift would have I8IJIied special justilicaliolll in the present case. (9) Evidence in answer to Ills pert of Mr Wong’s affDlllafion was put In by Mr Cowley. He says \hal in the ooInaIy case, iquiiaIors’ IeIIUl9Iatiln in a compulsory winding up in Hong Kong, where an iIsoIwlncy Placlilioner is nominaIed at the In! meeting of creditoIs or appointed direclly by the Court wi. be fixed by the 00IIIIittee of inspection or by the Court. Where Ihis does not happen, typicaIy because the case Is not of sullicieltt value, tie 0IIiciaI ReceNer. ‘.MIg to ofIIoad the adminisIraIion, will tum to one of IY«l panels. each d which, as I undeIsIInI it, consisls of insolvency practitioners wilfing to make IhemseIw!s avciIabIe to handle cases whicilthe 0fIicIaI Receiver desires should be taken private, as it were. One is Panel T (for cases where there are no assets) and the other is Panel A Mr Cowley says \hat Panel A cases are infrequent (he krEw of only 13 such cases dwing the period from 1 January to the end of November 2(13). On this basis. Mr Cowley says that the Panel A rates offer no appropriate benchmark for cases of the magniIude and compIexiIy of the present one, where, Mr Cowley says. rates equivalent to those sought in the pnlsant case. have been allowed, Had this case been proceeding in Hong Kong, Mr Cowley says. the rates claimed in the remtmeraIion application by hinseIf and Mr Middleton WOIdd have been aIowed. (10) TOOL was !8pI”mnled 011 the application by Mr Brian Child, He pointed out that section 432(5)(a)(vll of IA, 2003 IeqIIIes !he Court. in SillCIioning an interim payment of, or fixing. rJquidators’ rermmeraIion in a wilding up proceeding in Court. 10 take into account the hourly rates chaIged by other iIsoIvency praclitloners, both within and ouIside the Vigil Islands and that secIion 432(5)(b)(ii) provides that the Court may lake into account the standards and pracIice used for assessilll remuneI3Iion in jurisdictions other than the Virgin Islands. (11) SectIon 432(5)(a)(Vll of IA, 2003 is not to be read obtusely. The legislature does not require the Court. in fixing the R!IIIUII8r8Iion payable to a BVI insolvency pllle.lion. cooducting a liquidation exclusively within the BVI, to lake account of rates chargeable by insolvency practitioners in every single jurisdiction from China 10 Peru. Nor, in my judgment. is the Court required 10 check !he rates charged by a liquidator acting out of the BVI against rates chaIged by liquidators ac:Iqj out of oIIices abroad – or vice _. The legislature is In be taken as knowing 11aI!he very na\uIe of many, if not IOOSt, BVI Court ordered liquidations wi reqlire the appointment of liquidators operating elsewhere thill in !he BVI in addition 10 liquidators working within !he Territory. In such cases, section 432(5)(a)(vl) I8qUies the Court 10 lake into account the rates charged by firms of siniIar standing for ~ out simiI.- \\Uk in fI1e jurisdicIi:IIIs wiIhi1 which the Deign resident IiquidakIIS operate, as wei as !he RIles ClIl’eIIt in the BVI in respect of the remuneration of the BVI resident liquidator. The subsection is not to be read as requiring the Court 10 lake into accoIIlt raIes daged by, say, German insolvency practitioners in fixing DIe remuneraIion of a BVI resident 1qtidakJr. (12) In this case, the houdy /ales chaIged by Mr Cowley and Mr Mitdlelon (USD992 per hour equivalent) are significantly higher Ilan those charged by Mr ClUmpier (USD650) or Mr Mackellar (US07OO). The Court knows thai fie hourly rales proposed by Mr ClUmpier and Mr Maclcelar are not out of line with rates daged within the BVI. The evidence shows Ihat the rates daimed by Mr Cowley arid Mr MiddIeIDn (and .. staIf) are in line with going rates in Hong Kong for JIIidlililelS of simIar stancfll9 b \\Uk of this sort. The evidence further shows IhaIthe reason for the difference in hourly rates between the two jurisllicfioolS is down 10 the difference in ovedlead costs as between the BVI and Hong Kong. TheIe is nothing suqxising about this. Applying sectioo 432(5)(a)(vaJ’ therefole, the Court can be salislied that the rates chalged by KPMG (Hong Kong) are reasonable In althe cltulIIslalices. (13) As far as sectioo 432(5)(b)(ii) is ooncemed, the evidence of Mr Cowley, which I accept and which is not conlrallcted, is thai: in a ‘private’ case of Ibis sort the H”1gh Court in Hong Kong would aIow Hong Kong insolvency PI acIiIiotle/S hourly rates consistent with those now claimed by KPMG (Hong Kong). Mr Wong’s eviIence abouIlhe Panel A pracIice is shown by Mr CowIey’s evidence to be resbicted 10 what I may perhaps be aIowed, wiIhouIlliteliding the sIghtest ~ or dIstespect. 10 descnbe as the Hong Kong ~ Reoeiver’s cast airs – IUn of the mil cases not significant enough to excite con!pelilioo bake_) pnlClitiollets in that jurisdictim. Whaever else, this case does nol fall into Ihat category. (14) For allhese Fe as ~1S, thererore. I cOlls.r that !he hourly IlIIes asked for by both BVI appointees and by the Hong Kong appointees are fair and reasonable. There is no warrant for Jesbi:1i1l9 KPMG (Hong Kong) to the Panel A scales. (2) Time spent by the Uquldatols [15) The liquidators !qlpOIIed !heir claim for II!I1IIIIet’8Ii willi datal! tI time sheets. They set out. under each calendar day 0/1 which work was undertaken by the Uquidators or metms of Ihei” stall. the speciIic tasks undeltaka, and a sum of the lime spent duling that day 0/1 the tasks IsIad. They do not, however, aUriIute a specific quota of lime to each spec:iIic task. [16) Mr Child’s aiIicisms under Ibis head were two pronged. He COJI1lIained, yeneraIy, that the formal of the line sheets was insufIicienlly precise 10 enable him to challenge the ” Liquidators’ use of Iheir time by identifying dupllcallon or obvious wasIage. Althe same lime, he clained ID be able ID identify spetilK; instances where a particular member of sIaIf had repealed a task aRady perfomllld by a coJeague or to be able to identify tasks which were poinlless or otiose – for example, ‘perusing emails.’ The general complaint, however, was lIat the LiquidatoIs should have prepa’8d time sheets broken down into discrete tasks, each aIIoIted a cIscIete segment of time. Urjess that was done, he Slid, it made a chaIenge by a crediklr diIIk:uJt. The line sheets should be prepared in such a way as to facilitate, raIher than obstruct. chaIenge.

[17]TheIe can be no doubt that best Placlice is to record specific tasks, when capable of being aIIocatad disaeIe amounts of lime, separaIeIy, although I disagree with Mr Child that the function of a IiqIidator’s Ime sheet is to provide a critic willi material for complaint Even where that is done. however, unless the peISOI’I making the record provides an aa:ompanying narrative, it wi be impossible for the reader to discern whether I’MI peISOI1S, reconIed as having spent tine on the same task, were dupflcaling WOIIt done by the oller or anditg ID dllfelent elements of what, broadly speaking, was the same pleat of work. WheI8 IiquIIators are seetling remuneration on a line basis. persons sauti’isillg their reconIs should start from the asstIIIptions (a) that the 6quidators and IIeir sIaIf me honest, rather IIan dishonest and (b) that they will not seek to chaJge an estate for umeressary or pointless work. In the present case, the records relied upon by the I.iquidatoJs ID j.ISIfy !heir firms’ work are generally detailed as to subject matter. The reader is able to form a clear view of the tasks canied out by the person I8COidin9 his or her line and that they were properly diJecIed at bthering the progress of the liquldalons and achieving its object. TheIe are bound ID have been elements of work which wi have proved futile or which, with the benefit of hindsight. might have been done more economlcaliy or, even, not alai, but that does not mell1 that the time spent upon IIem was not properly spent. within the meaning of section 432(5)(a)(ii). I agI8e with Mr Child that it MUd hlMt been preferable if the line sheets had allocated disaeIe time ID discrete tasks. but t cannot accept that the faclthat they do not do so means that they are not capable of vouching for time properly spent. which. in my jJdgmenl, they are Sl.!CCBssrul in doing.

[18]Mr Child made efforIs to find examples of waste or wplicalion, but will I’MI minor exceplioos, the aIleI1IpI bnIered, since he was unable to show that line had been wasIed. It is iqxJrtanI to add that he wouJd hlMt been no bailer off had the tasks been separated out into cIsaete line packets, since, absent a narrative OOITlIl18fltary, knowing the lime spent OIl each elelllel’ll of WOIIt would not by iIseIf have enabled the reader to know whether it was ~, or cId not represent lime properly spent in the circumstances under which it was spent. (3) Fees of Llquldators’legal advisers ‘. (19] Mr ChiM argues, as I undeisland iI, Ihat !he biIs randeIed ID !hem by !he LIquidators’ Hong Kong legal iIdviseIS shouJd have been wriIIen down as if !hey had undagoile a “.., and “.., ImaIkJn in the High Court iI Hong Kong. This submission is misconceived. Fist, the I.lquidaDs obIained legal advice for !he purposes of Ii BVI wilding up, not for !he 1DJl’l5eS of IIc!qJ repras anled iI adversariaIliligalion illhe HIgh Court in Hong Kong. SealndIy, Ihe I..iquidatJIs I18Ihe legal aIvIsoIs’ cIianIs. /lis such, they (a) negoIIaIed what lEy mnsldered b be appt …. I aging .. and (b) chalEnged, and dedined b pay for, work which !hay cOilsideled not c:hargeabIe in the ckalmsianoas d this 1iquidaIion. Thirdly, liquidators are entitled to recover charges by service provideIs b work done, pmvided thatlhe charges have been properly inaJrred – unless !he chaIge is manires1Iy _ a s shle.. It is not SlJII98S’ed that it was In 111’/ Will improper for the I.iqtJIdaDs to obtaillhe senbs provided III them by I1eir HcqJ Kong legal advisors, nor IIaI any of the bills which they seek to recover iDm lie esIaIB 118 manifcsUy ex e s slil&. Thete is noIhing In lis point. ConclusIon (20) With the two excepIblS which I bawl marioiled, !he liquidators’ rerJUl9nIIion dained in their ~ of 29 May 3)13 is iICCDIdi9Y appnwed.

CommerdaI eo..t Judge

4Man:h2014